Webb floats proposals for “defined aspiration” pensions

Pensions minister Steve Webb has proposed the creation of a new hybrid pension scheme that would not be subject to the same strict regulations of defined benefit schemes and offer employers more flexibility to react to market conditions.

According to the FT, Webb (pictured) floated the proposal for defined aspiration pensions in a speech to the National Association of Pension Funds last night.

It says the Government is looking to encourage employers to offer a “third option”, as many companies continue to close their DB schemes in favour of a defined contribution scheme, where retirement income is not guaranteed.

Webb said the DB rulebook, which forces companies to adhere to strict funding requirements and contribute to the Pension Protection Fund, could be relaxed for defined aspiration schemes.

He said: “This type of pension could sit within a less burdensome regulatory regime and give businesses the freedom to offer the type of provision that works best for their employees.

“A defined aspiration pension could allow employers to offer a measure of security to their staff, but would have a degree of flexibility that would recognise when external factors – be it increases in longevity, or significant changes in market conditions – make a firm promise impossible to keep.”

Webb said defined aspiration pensions would give employees a “greater sense” of what they will get in retirement than DC schemes.

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if the government really want to help, they should follow through on reducing regulations not adding more solutions. And frankly if they want more DB style solutions, why not simply go for a defined lump sum rather than a defined pension. Regs are just about in place to cope with this

I assume that, this being such a great idea, Webb and his fellow polits will be lobbying the government incessantly from now on to change the basis of their own pensions to “defined aspiration”, with the same vigour they usually do on their pay and pension increases.

A system where the return on your contributions can be reduced at will whenever life expectancy increases, or gilt yields fall, or the actuary has a hangover… any rational person would rather have DC. At least then when your pension falls, you know why, and that it might go back up.

‘but would have a degree of flexibility that would recognise when external factors – be it increases in longevity, or significant changes in market conditions – make a firm promise impossible to keep…..’

creep in it is plain that this can never work. Is this really the best that Mr Webb can come up with? There are certainly better ways of dealing with the annuity lottery but this is a trip to loony land (again).

We do need a third way.
Type 1) The full blown final salary pension is no longer sustainable for many companies
Type 2) Money purchase schemes rely on the dreaded annuity – you only get the equivalent of interest and when you die they keep the money!
Type 3)……….